The Junior ISA: tax-free savings for the kids

If we’re going to solve the savings crisis in this country, we’ve got to get children saving.

Enter…the Junior ISA.

The Junior ISA is a new tax-free savings account just for children.

Launched in 2011, it was supposed to replace the old child trust fund which was abolished at the end of 2010.

However, whereas with a child trust fund your child would get a cash handout of as much as five hundred pounds from the government to start them off, there is no cash incentive to invest in a Junior ISA.

So what ARE the benefits of saving in a Junior ISA?

Just like a normal ISA, the Junior ISA acts as a tax wrapper which protects your savings. You can save up to three thousand six hundred pounds a year in a Junior ISA without paying a penny on the interest you earn, and that limit will increase with inflation each year.

Like with a regular ISA, you can open both a cash account and a stocks and shares account.

You can then split the yearly allowance between the two different types of accounts in whichever way you’d like. However, you can only have one of each account at any one time.

So who can open a Junior ISA?

Children under the age of 18 who are a UK resident are eligible if they don’t already have a child trust fund – in other words they were either born before September 2002 or after the third of January 2011.

That said, anyone, be it parents, grandparents or kind aunts can deposit money into the account on the child’s behalf.

If the child is over the age of 16 they can open the account themselves, but those under 16 will need a parent or guardian to manage the account for them.

Any parents anxious their child might squander their savings on penny sweets before they hit their teens, meanwhile, will pleased to hear that neither parent nor child can withdraw any money until the child reaches 18 – but once they do so the money accrued is THEIR MONEY, whether or not you had it earmarked for university or a deposit on a house. If the money is not withdrawn, the account will automatically be converted to an adult ISA and continue to benefit from its tax-free status.

The other good news is that 16-year olds with an adult cash ISA are allowed to open a Junior ISA account as well. This means that at the age of 16 a saver can hold three thousand six hundred pounds in a Junior ISA, and five thousand three hundred and forty pounds in a conventional cash ISA on top. The only ISA account a 16 year old can’t open is an adult stocks and shares ISA as you have to be 18 to do this.

To get your hands on a junior ISA, hit the high street and see what the banks and building societies are offering. Stockbrokers and platform providers, such as Hargreaves Lansdown, also offer a range of stocks and shares products. Remember, you can switch your accounts to a different provider at any time.

If you want to learn more about ISAs and other ways you can begin saving for your child’s future our Lolly investment guides are a great place to start.